10% of $500,000 - down payment regulation & Georgina Real Estate.

There's an old saying among circles in commercial real estate that goes something like this:

If you want to live in the GTA, drive north until you can afford.

I think that now, more than ever, the practicality of this statement plays a big role in the Canadian real estate market. As a result of the change in policy announced by Finance Minister Bill Morneau, home buyers will have to put a 10% down payment/equity position on the price of a home over $500,000.

Now don't get me wrong, I love seeing this kind of fiscal responsibility and I love the ripple effect it has on encouraging consumer responsibility. But with that being said, I do expect this change to cause a marginal, but noticeable shift in the market dynamics of the Greater Toronto Area. In traditional fashion, I'd like to push that statement a little further and analyze the effect this policy will have on the real estate markets of the Northern GTA, York Region, and specifically Georgina.

I expect this change will be a positive one for Georgina, and similarly-priced neighbouring markets such as East Gwillimbury, Bradford, Uxbridge, Whitchurch-Stouffville, and Newmarket. This policy will create an inaccessibility of real estate for many homebuyers in the southern GTA, in places like Vaughan, Markham, Richmond Hill.

There is a gradual decrease in average price as we move north in the Greater Toronto Area, with Georgina being the only municipality in York Region having an average sale price below $500,000 - with a $458,000 average price of a home in Georgina in 2015, and $500,000+ price point in April of 2016.

So, what does this tell us?

To me, the implications of this policy are pretty clear. The individuals who are being marginalized by the policy, for example, those who do not have a 10% down payment to buy the >$500,000 home they want to buy will have to make a compromise. I feel that in a lot of cases, buyers will be making that compromise in location, rather than asset quality or utility.

In real estate, we are in the business of space. In almost every case, we have buyers that are purchasing based on the utility of a home - ideally, they are buying based on how much use they can get from it. Buyers have specific criteria, for example, a number of bedrooms, bathrooms, and size home home they require.

When buyers can't afford to fulfill their utility goals in one market, they're squeezed out of that market, and pushed into another one. This gives buyers two options:

Buyers can decide to sacrifice an area of their utility, for example, living without one bedroom or bathroom, living in a townhome as opposed to a detached, living with less space, or a decreased finish quality of the home, etc.

OR

Buyers can decide to have the same quality and utility of home in a location further from the downtown core, where they can afford to fulfill their needs.

There is a principal of urban economics that deduces a residential end user's buying decisions to a function of commute time and commute cost versus the affordability of the area that they're living in. I think this concept lends itself favourably to Georgina since the Provincial Highway 404 has reached Ravenshoe Road. Although we've seen rather substantial year over year price growth in Georgina, the reality is, we're still the most affordable municipality in York Region, and your dollar still goes the furthest in Georgina in terms of utility. Now that the commute time has been reduced by our proximity to a major highway, the negative effect of the commute time and cost variables in the aforementioned function play a lower role, making Georgina a more practical option for buyers who don't want to sacrifice utility in their home purchase.

The way I expect this policy shift to manifest into Georgina's residential real estate market is in the following hypotheses:

The average price of a home in Georgina will pass $500,000 in 2016.
The largest increase in demand will be for homes in the $400,000-$499,999 price range in Georgina in Q2 2016
The absorption rate of new homes in $400,000-$499,999 will increase
We will see an increase in denser and more affordable new housing supply in the pipeline over the next 5 years

And a swing for the fences in the retail/commercial ramifications:

Average household income within Georgina will increase and stalled/unabsorbed retail development will reach leasing critical mass & begin construction towards Q3-Q4 2016.